The October 6, 2010 New York Times had a feature story on the Tribune Company post-acquisition by Sam Zell. The company is now in bankruptcy and there were lessons for all in this story. Here are three lessons I got from this story.
A high percentage of the new management team came from other industries. They not only looked down on the publishing veterans at the firm they assumed that their success in other industries (including real estate and radio) would instantly transform to success in the newspaper business. Of course it didn’t.
A few years ago I coached a business owner who had been incredibly successful in one industry and then bought a business in another. He thought he previous success would carry over so he didn’t learn the nuances of his new company and soon it was foundering. I won’t go into the details but I will state that once we created a plan for the new business, implemented the plan and paid attention to the details he thrived.
According to the Times the management people exhibited boorish, sexist and unprofessional behavior. Of course this is deplorable and unacceptable at any level and especially for new owners who are setting the culture for the firm. We live in more diverse times and have more diverse workplaces than ever before; not to mention workplace rules and regulations to prevent hostile behavior. The bottom line, all employees and customers need to be treated with respect, courtesy and inoffensive behavior. Losing good people because of this can cripple a business, especially a small business.
Finally, at the time of the deal there was bragging about how little cash was used. Of course this meant the deal was overleveraged and the company ran into cash flow issues immediately. I warn business buyers (and sellers) that the debt coverage ratio has to be a lot more conservative than even banks want. We go for a 2:1 ratio, or 50% of profit to acquisition debt. Stick to this range and the company can handle most hiccups and a hiccup can be a fast growth spurt (fast growth can suck cash) as much as anything negative.